A Matter of Finance - June 2002

Financial Islands Plan Well
and You'll Enjoy the Stay Without Worry

By Jack Lewis Ludwig, CFP

Today, more people than ever should achieve a comfortable standard of living in retirement, free of financial worries. However, the sad fact is that of 100 people who live beyond the age of 65, only an estimated ten will encounter minimal financial worries. In 2002, that means earning at least $50,000 a year. But half of those same 100 people will earn less than $7,500. So what do the allegedly successful 10 percent do that the other 90 percent fail to do? They probably aren't even aware of it.

Just as people look forward to and plan for great vacations, they prepare for retirement! They study and mold and modify a plan until they are satisfied that it is what they want and can afford. Smart people learn about where they're going; what to do when they get there; how they're going get there; and what they need to enjoy and protect themselves, and provide for contingencies to deal with the unexpected.

The average traveler may invest as many as 50 hours each year to plot out a vacation plan. How many hours do you think you should spend preparing your journey to the "Financial Islands?" After all, isn't that where you'd hope to enjoy your post-retirement years? Considering your life expectancy, you should think of it as at least a "Twenty-Five Year Vacation." Wouldn't you like those years to be as good as the best ones of your life? If you plan to retire at age 60, the odds today are good that you'll live to well past 85.

DREAM OR NIGHTMARE
Failing to prepare for your dream vacation correctly can be hazardous to your health. Think of inoculations and medical emergencies. Failure to plan financially for your future can be likened to a living death, doomed by having outlived your assets. Cruel real-life stories that still come to mind come from the late '70s when rampant inflation wrecked lives and grizzly tales circulated about the elderly trying to subsist on pet food.

By failing to plan and understand meaningful alternatives for your retirement, you may be subjecting yourself to great risk. Many retirees living on "guaranteed fixed incomes," even those with pensions and other savings, could face a sharp decrease in purchasing power, which, in turn, decreases their standard of living.

PLAN FOR TWO
When preparing for a vacation, most people share the planning experience with their spouses. Deciding how you and your significant other will spend time off ought to be exciting. So if you include your spouse in planning your vacation, don't exclude him or her from your financial and retirement planning. Joint decision-making is crucial for financial planning. The spouse who makes plans alone is frequently not around to enjoy them. All too often that imposes extra burdens on the survivor who wasn't privy to the rationale, doesn't possess the experience and knowledge to handle it, and may not have any desire to do it on their own.

SOMETHING NEW?
Vacation planning begins with basic research and decisions. Will you return to a favorite place or try something new? There is never anything wrong with the tried and true in financial plans - or is there? If you restrict yourself to CDs and savings accounts as your primary investments, you probably won't get very far, or enjoy very much. You'll also miss out on many worthwhile investment opportunities and possibilities for meaningful wealth accumulation, with reasonable risk.

Those who try ultra new vacation spots - the investors who rush to include "hot" stocks" or "The Eight Best Mutual Funds of the Year" - are merely travelling to questionable places without quinine or a return ticket. Investors who sincerely want to expand their horizons with proven and/or updated investments, are the people who'll move toward increased income and growth plus enhanced family protection. It is like the classic credo of investors and inventors: "If you are always looking for a better way, you're more likely to find one than if you stay complacent."

WHERE TO GO?
Of course, you can do all the research by yourself, or you can seek assistance. Advice is preferably available from "experienced" friends or professional travel agents, but it's probably wiser to seek the recommendations of trained professionals rather than trusting the advice of "well-intentioned friends."

Investing, too, involves such careful study, selecting locations for various kinds of and purposes for your capital. Again, you can do the research and investing alone, but you'd be far better off seeking the advice of a "well-trained and experienced professional." Just like the travel agent who's personally familiar with your vacation essentials, a financial advisor is best suited to help develop and implement a wealth accumulation and distribution plan that fits your needs and goals.

Whose advice you seek is as important as the advice itself. Over time, you'll develop a familiar relationship with your travel agent, who'll remember and understand your likes and dislikes. Similarly, you'll want your financial advisor to have immediate access to meaningful resources and working relationships with experts in the various and complex fields of accounting, law, taxation, and insurance when appropriate - like the guides travel agents arrange to meet you in some "foreign" locale.

KNOW THE LINGO
A trip to the "Financial Islands" requires that you be prepared for an ever-changing language barrier. The eclectic terminology of financial planning even troubles experts and may be downright aggravating for the novice. Attempt to master financial terms on your own, without the assistance and interest of your financial planner, and be prepared for some very costly mistakes. Your planner is your interpreter, well-versed in the language of investments, strategies and risk avoidance. A good advisor will explain strange terms and their meaning in relation to your plan. Like immersion in a foreign land, once you've begun your plan, you'll be surprised at how quickly you come to understand the once foreign language of finance.

YOU ARE NOT ALONE
Once you've decided which of the "Financial Islands" to visit, intense selection can begin. If you buy individual stocks, how many shares, which company, from whom, what purpose, where held, what price, when, why, and much more? Making your own selections means extensive research, unless, of course, you assume the risk of "guesswork." For the inexperienced investor, however, guessing is difficult, time-consuming, and inherently unwise. Your financial advisor can make some general recommendations for you to choose from in building a quality "core stock portfolio."

With any mutual fund, the professional portfolio manager decides which stocks to buy, sell, and hold for you, without your input or that of the other fund shareholders. Like tour guides, good portfolio managers use their knowledge, experience, and resources to improve the odds of making good picks and avoiding the not-so-good while sticking to the fund's guidelines.

THE TIME IS NOW
When to begin planning is the next issue. The simple response is a resounding "now." Procrastination in the planning of either a dream vacation (while the weather is excellent) or retirement (when interest rates, inflation, and taxes are all low) could prove wholly disastrous or at least additionally expensive.

Every day that you put off planning and contributing, you allow another opportunity to pass you by. Planning early will give you the edge over other prospective retirees. Waiting until the last minute will most likely reduce both your investment's purchasing power and any meaningful accumulation of wealth, especially now with the expanded contributions allowed for 401(k)s and IRAs.

Make last minute arrangements for your retirement and prepare to suffer the same fate as the foolhardy traveler. Necessary precautions can't be taken after the fact, and when the traveler tries to, his or her dream vacation quickly degenerates into a nightmare. Similarly, effective and early investment plans, built around decisions for your future, should have a positive impact on the financial comfort level of your retirement and on the folks who depend on you for their financial well-being.

The earnings differences you forego by not investing wisely and early could cost you an extra week of vacationing each and every year for the rest of your retired life. What price do you place on future comfort and opportunities for your enjoyment? Plan now!

A professional financial planner will advise you to plan and create a lifetime checklist of financial comfort. It's called "Total Financial Planning," and it should leave nothing to chance. You may choose to ignore certain aspects, like long-term-care insurance or investing in international mutual funds. After all, it's your money and your life. But opportunities won't wait forever, and all you have to do to get started is call.

Jack Lewis Ludwig, CFP, is a registered representative with Nathan & Lewis Securities. Call (484) 919-4229, e-mail jludwig@NLFS.com, or write to Jack at 422 Dorothy Drive, Suite 200, King of Prussia, PA 19406 to discuss your own retirement plan. You can still get a free copy of Vital Documents and IRA kits (ROTH and/or regular). All, of course, are made available at no charge or obligation.

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